James Ziliak and Christopher Bollinger, both professors of economics in the Gatton College of Business and Economics, are the recipients of a new, 3-year, $373,000 National Science Foundation grant that will fund their ongoing research on earnings volatility and inequality.
The project will look at the occurrence of nonresponse and measurement error in the Current Population Survey (CPS). The CPS is a large dataset compiled monthly by the Census Bureau that surveys about 60,000 households nationwide. It is the primary source of statistics on the labor force, poverty, inequality, and health insurance coverage.
The researchers will link CPS data with the Social Security Administration’s Detailed Earnings Records, which provide full earnings history of US taxpayers.
Such administrative data on earnings and other related topics avoids some of the measurement problems of surveys, but their weakness is that they do not provide information education, race, and family structure, which are needed to explore issues related to earnings volatility. Weaknesses of CPS data include non-response on survey questions and errors in reporting income. Those shortfalls create obstacles for researchers in their attempts to draw information about earnings from the survey.
Bollinger and Ziliak’s project will exploit the strengths of each data set to investigate the reasons for and trends in earnings volatility, which has important links to poverty, rising income inequality, declining mobility, and the use of social welfare programs.
Their work, which will utilize the high security Kentucky Research Data Center on UK’s campus, will explore how earnings change to explain rising inequality and designing social welfare programs. The research will investigate important questions on earnings volatility trends and underlying demographic causes, the effects of economic shocks on earnings, and how compensation structure may lead to shifts in earnings.
The project consists of four studies that utilize restricted-access survey and administrative data from the Current Population Survey (CPS) Annual Social Economic Supplement (ASEC) and Social Security Administration’s Detailed Earnings Records (DER). The ability to observe both multiple reports of earnings (administrative and survey) combined with the short panel structure of the CPS and the full earnings history available in the DER, allows identification of permanent income, as well as measurement error structure.